Darth Vader became a galactic wrecking ball. Some Star Wars fans blame Obi-Wan (Ben) Kenobi. Yoda, the lovable green Jedi Master, had warned Kenobi that Anakin Skywalker–the future Darth Vader–was far too old to start training as a Jedi. Kenobi said he would keep an eye on his protégé. But that didn’t work.
We all battle a dark force when it comes to money. Nature loads it. Environment pulls the trigger. It’s tempting to buy today, pay tomorrow. Retail marketers and credit card companies work full-time to make us trigger-happy. Anna Attkison, writing for Parent.com, quoted Dorothy Singer, a senior research scientist at Yale University. Singer says kids should start to learn about money when they’re barely out of diapers.
That might have been the last thing you thought about when your child was still a toddler. But if they’re now in their teenaged years, there’s still plenty you can do. Here are four tips to raising money-savvy teens.
Talk About Money
The American Psychological Foundation reported a 2014 survey that said 18 percent of Americans believe we shouldn’t talk about money at home. But the foundation says, “talking often about money, and modeling good money management habits…set[s] your children up for a future of financial success.” Here’s what helped me.
When I was 15 years old, my mom asked me to join her at the dining room table. “Let me show you how much money your father makes,” she said.
I took the bait and jumped into that chair. I was pretty impressed by how much money he made. It was the mid-1980s. He earned the equivalent of $24,000 USD per year. At the time, that was close to the national median household income.
But then she introduced me to income tax. We lived in Canada, so his marginal tax rate was 40 percent. That took power out of income like a tapeworm in the gut. Next, I learned about our household mortgage costs and grocery bills. She showed me how much they paid for heating and hydro. And My siblings and I played sports. That wasn’t free. Then she showed me insurance costs for the house and the family car.
At the time, my parents couldn’t afford to save for their retirement. They couldn’t afford to pay for college costs. I learned that raising four kids on that kind of income was like fighting Darth Vader with a six-inch light saber.
High-income families don’t have to show their salaries to their kids. But teens can still learn a lot from discussing the family budget.
Delay Gratification to Build Financial Muscles
Walter Mischel is famous for some tests he did on kids. He started at Stanford University’s Bing Nursery School in the 1960s. His research team offered children a treat of their choice. They could eat that treat right away. But if they had the willpower to wait 20 minutes, they could have two treats.
Years later, when his first subjects were in their 50s, he conducted MRI brain scans. The adults who had delayed gratification while in pre-school had higher activity in their prefrontal cortex area. This part of the brain helps people to control impulsive behavior. In other words, they were more likely to save, stay out of the casino and avoid consumer debt.
Mischel wrote about his experiments in The Marshmallow Test: Mastering Self Control. His research said delaying gratification is a skill that can be learned.
That’s why parents should help their teenage kids to learn this skill. If they ask for something (like an iPhone or a car) parents shouldn’t buy it. Teens should learn how to save and wait for what they want. Parents could meet them partway, paying some of the cost. But the Dark Side wins if parents pay the whole thing.
Start Investing Early
I’ve spent the last five months speaking to teens at more than two-dozen schools. Each time, I introduce this scenario: Assume Joe saves $3,650 a year from age 19 until age sixty-five. That’s a total of $167,900. Jimmy starts to save at age 40. He saves $20,000 a year until he’s sixty-five. In total, he saves $500,000.
If they earn the same income, Joe can spend more of his lifetime income because he saves a lot less. That sounds pretty good to a teenage kid. But then I ask the students to work something out with a compound interest calculator.
If Joe and Jimmy each earned a 9 percent compound annual return, how much would they have at age sixty-five? The students’ eyes grow like planets when they figure it out. Jimmy (who saves more) ends up with $1,846,479. Joe (who saves less) ends up with almost $2.3 million.
When I dismiss the students, many don’t want to leave. They want to know how to invest…starting right away. If they earn money, they can start to invest in an IRA. One of my friends did that when she was just thirteen. She’s in her late 30s. She has never invested more than $5000 a year. But she already has more than $300,000. That’s a lot of money. According to the May 2015 Employee Benefit Research Institute Report, the median IRA balance for woman between 35 and 39 years of age was $12,857 in 2013.
If we start to save early, we don’t have to save as much. That’s the sort of lesson that can help a lot of teens.
Use Common Sense When Picking a College Major
Teens should follow their employment dreams. But it’s also important to use some common sense. Last year, I wrote about the ten worst college majors–where employment hopes were dismal and the pay wasn’t great. Below, I’ve created a top ten list. These are college majors with good employment prospects and decent earning power. Before attending college, teens should learn about different prospects for college degrees. Those who don’t might end up waiting tables–despite their diplomas.
The Dark Side is strong. It convinces plenty of people not to talk about money. It tempts them to buy what they can’t afford. It prevents them from saving and investing. Sometimes, it sends them off to college without a firm financial plan.
But teens can learn a lot about money. It helps them mold a strong financial future like a striking Jedi Knight.
Top Ten Majors For Employment and Income
|Degree||Projected 10 Year Job Growth||Related Job||Starting Salary||Mid Career||Online Job Postings|
|Civil Engineering||17.2%||Civil Engineer||$55,600||$94,500||247,719|
|Biomedical Engineering||25.7%||Biomedical Engineer||$60,900||$96,400||54,865|
|Nursing||15.5%||Registered Nurse||$56,600||$73,600||1.7 million|
|Computer Science||15.5%||Computer and Information Research Scientist||$63,100||$105,000||3.1 million|
|Information Security||30.9%||Information Security Analyst||$57,100||$86,600||1.8 million|
|Management Information Systems||16%||Computer and Information Sales Manager||$56,800||$96,300||3.7 million|
|Finance and Economics||15.5%||Financial Analyst||$55,700||$101,000||1.7 million|
|Software Engineering||22.7%||App. Developer||$62,500||$96,800||1.2 million|
|Aerospace Engineering||11.1%||Aerospace Engineer||$64,800||$107,000||5,414|
|Median For All 215 Majors||11.1%||$42,600||$70,800|
|Source: Kiplinger’s; December 2016|